Housing credit growth picks up in April

Credit growth bounces

Housing credit growth picked up to 4.4 per cent over the year to April, according to the RBA's latest financial aggregates figures, released today. 

The acceleration suggests that we'll likely see double-digit housing price growth by the end of the financial year at 30 June, mirroring what has happened in some other countries. 

To date the cycle has been driven by first-time buyers and upgraders, so there's little to note from a financial stability perspective. 

Investor credit growth has been just 1 per cent over the year to April, close to the lowest level on record, as more and more loans have continued to be flicked off interest-only terms. 

Overall, total credit growth in the economy was just 1.3 per cent over the year to April, which is also only just off the cycle lows. 

Personal credit growth remained deeply in negative territory for the year, as consumers have benefited from the stimulus packages and cleared credit card and other personal debts. 

Melbourne disruption

Auctions mixed

Melbournians had a scramble to get through this weekend's auctions, with all the inevitable interruptions from the city's fourth lockdown.

Half the city seems to have headed across the border to New South Wales or to holiday homes down the coast. 

There were only 4 Victorian cases of the virus yesterday, and 5 today, there is hope that the lockdown might end on day seven, though past experience suggests that may not yet play out. 

Sydney's auction market is holding up well, on strong volumes.

We've seen a bit of a switch in enquiries in Sydney towards the unit market, which is partly reflected in the above figures.

I recently discussed here some of the measures designed in part to support the inner-city apartment market introduced via the Federal Budget. 

Aussie household wealth heading to $15 trillion

Stocks at new highs

Aussie stock indices as measured by the ASX 200 (ASX: XJO) increased to 7,179 today, now exceeding the highs of 2020, and indeed the pre-global financial crisis peak of 2007.

Miners have performed lately on the back of supremely strong commodity prices, and net worth on Aussie household balance sheets has continued to expand to all-time highs.

There are some obvious risks, since globally stock markets are priced at nosebleed levels, largely due to the heavy weighting to U.S. markets. 

You can listen to my Livewire Markets buddy Patrick Poke discussing why stocks are (or may be) in a bubble with investment legend Jeremy Grantham in a forthcoming two-hour podcast here. 

As Patrick notes in his summary article here, the outlook for commodities may be relatively bright, but there are other risks, and indeed Grantham suggests that global stocks are in a bubble that is about to burst.

The bigger picture for Australia is that global demand for commodities is likely to be very strong over the coming decade, as international countries pledge almost in unison to 'build back better'.

And since Australian stocks have generally speaking not been priced quite so extravagantly, the decade ahead could well prove to be a good one, even if there are some setbacks along the way.

Record household wealth

Australian household wealth already increased to a record high of A$12 trillion in 2020, with land and dwelling assets climbing towards $8 trillion, and it looks like this trend has only accelerated in 2021. 

The mean wealth per capita in Australia has thus already increased to above A$450,000.

And indeed, if you think about it, the mean wealth per household in Australia now stands at over A$1 million, which represents a staggering increase from only half that level in 2006. 

Drivers have included rising city land prices, the recent strength in commodities, the popularity and success of Australia's tax-favoured superannuation system, and the long global recovery in stock markets since 2009. 

Policy has also been largely successful in avoiding dramatic or protracted economic downturns in Australia across the past three decades. 

If the prevailing housing and stock market trends persist in the second half 2021, Australian households will prove to be the world's wealthiest by some margin (possibly excluding Switzerland, depending on you preferred metric), as total net worth increases towards A$15 trillion. 

The Big Picture Podcast

The Big Picture

I jumped on The Big Picture podcast with Michael Yardney to discuss the Budget and the latest economic and property trends. 

Watch the video below (or visit the homepage version here): 

You can subscribe for the free Yardney podcast here. 

CapEx lifts in spite of disruptions

Investment returns! 

There was a tidy 6 per cent lift in actual private new capital expenditure in the March quarter to $31½ billion. 

This represents a long overdue return to private business investment and the best quarterly lift in 9 years. 

Source: James Foster, ABS

Investment plans for 2021-22 also lifted towards $114 billion (Estimate 2), which was also the best annual uplift since the mining boom years of nearly a decade ago. 

At the state level New South Wales, South Australia, and especially Western Australia have been standout performers for actual investment outcomes over the past year. 

Investment in Victoria remained -8.4 per cent lower than a year earlier, and there are some concerns about how the 7-day snap lockdown might further disrupt plans over the next year.

Of course, over the long run there probably won't be too much impact, but the nightly news did contain reports of "lockdown dodgers" heading out of the state to escape the state's fourth lockdown of the past 15 months. 

Melbourne heading for a fourth (fifth?) lockdown

Lockdown redux

It looks like Melbourne is heading for yet another lockdown, with the latest cluster of COVID cases reportedly climbing to about 25 overnight.

There's no easy way to measure this, but there's no logical reason to believe this won't lead to a further exodus from Melbourne.

South-east Queensland and many regional and coastal cities are already absolutely groaning under the weight of both interstate and intrastate movers, and the looming lockdown announcement will likely add fuel to the fire.

It sounds like this time around Melbournians are quickly scooting across the border towards Sydney (and after the previous iterations of Victorian lockdowns dragged on for so long, who can blame them?). 

Property trends

This will likely have a twofold impact on rental markets.

According to SQM Research figures, Sydney's vacancy rate peaked at 3.7 per cent in September 2020 - impacted by the lack of international students and tourism - and has been easing since then, back down to 3.4 per cent as cheaper inner-city unit rents have successfully lured in tenants.

Melbourne's vacancy rate suddenly spiked to 4.5 per cent in the first quarter of 2021, following hard on the back of previous restrictions.

There were more than 25,000 Melbourne vacancies in April 2021 (down from 27,300 in March), but this figure could quite feasibly now jump higher again.

On the other hand, the Melbourne exodus underway will add to the rental market pressures being experienced across much of the rest of Australia. 

Let's hope for some better virus news over the next week. 

Rental undersupply in 2022

Unit construction still slowing

It's been a strange year for rental properties.

It always seemed likely that the massive clampdown on property investors (and non-resident buyers) from around 2017 onwards would lead to an undersupply of rentals eventually, but it hasn't worked out exactly as one might've expected. 

There's been a significant shift in demand away from the CBDs, while the absence of international students has left an obvious hole in the inner-city student rentals markets.

Regional rents are soaring, though, especially in Queensland and all the way up and down the New South Wales and Victorian coastlines. 

There are also rentals shortages in inland cities such as Orange, and some of the capital cities too.

Detached house building has rebounded very strongly, due to the HomeBuilder stimulus.

But without non-resident investors to finance apartment projects attached dwelling construction continues to flail, hitting six-year lows in the March quarter.

Queensland is heading for a chronic rental shortage in parts, although at least construction activity in the market seems to be bottoming out here. 

This trend could be exacerbated by yet another COVID outbreak in Victoria, a trend which has seen a strong change in interstate migration over the past 15 months, towards south-east Queensland.

In Melbourne and Sydney, unit construction continues to slow, and due to the long 2-3 year lag effects related to apartment developments the undersupply will be felt once international borders are reopened. 

It's a mixed picture, though, around the traps. 

Detailed report as always from econoking James Foster can be found here. 

Overall construction work held up at about $52 billion for the quarter, which was solid enough, so the stimulus packages have had the desired effect. 

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It was the fastest day to date for Australia's vaccine rollout at about 105,000, with the weekly pace increasing to a fresh high of 516,000 doses. 

There will be a more intense focus on the pace of the rollout now as Victoria's virus outbreak spreads. 

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UK house prices rose 4 per cent over the year to April, with strong performance in Liverpool, Manchester, and Leeds (up from 2.3 per cent growth a year earlier), according to Hometrack's latest monthly update. 

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Loan sizes jump

Average loan size

The average loan size has jumped by about 10 per cent in recent months, according to CBA's internals:

Lending volumes are obviously up strongly, by 50 per cent from the nadir of a year ago. 

Many are looking to renovate their homes, given the lack of ability to take overseas holidays. 

There has been a rush to fix mortgage rates, as borrowers figure that the bottom may be in for interest rates. 

This will probably begin to happen from the middle of the year, if modestly, as the Term Funding Facility is ended.

The promise of easy money

Confidence plays

A few blog thoughts today here (click on the image below):

While house prices hold strong, units may be staging a comeback

Open Agent

Open Agent discuss the gap between house and unit prices here (or click on the image below):

Property market calming

Auctions calming

A far less frenzied climate now emerging in property as buyers face more choice.

This week's preliminary auction clearance rates via Domain (with the prior week's figures also revised):

Source: Domain

Little likelihood of regulatory intervention now (assuming it ever was likely).

A number of rental markets have become chronically tight, as demand has shifted to the suburbs. 

Investor credit has overall been much harder to come by over the last 4 or 5 years, so this was always on the cards. 

House building is picking up though, which will help. 

Weekend reads

Must see articles

This weekend at Property Update, a look at the tax changes in Victoria as they relate to property.

Check it out here (or click on the image below):

You can also check out the Yardney podcast for free here. 

Don't skip the DD

Pre-purchase DD

Property listings have been very low this year, and some buyers have been tempted

I record a short video here to discuss the risks (or click on the image below):

Employment pulls back in April as JobKeeper expires

Employment stalls

Employment fell by 30,600 in April, comfortably missing market expectations.

Still, things are looking a lot better than a year ago, with total employment up by a massive 638,000 or 5.1 per cent year-on-year to 13.04 million. 

Thanks to virus control, Australia is one of only a handful of countries to see employment above pre-COVID highs (alongside New Zealand, and South Korea).

The unemployment rate continued to ease, declining to 5½ per cent.

The pullback in April was largely seen in New South Wales, perhaps in part due to the JobKeeper expiry, but probably just as much due to a seasonal effect and the timing of the Easter period. 

There are, however, few concerns in New South Wales with job advertisements surging to historic highs this month. 

Hours worked increased at a double-digit percentage rate from a year earlier, due to the base effect, but were down by 0.7 per cent in the month of April.

Overall, a softish result which missed expectations, although there's nothing really here to suggest that the unemployment rate can't fall to 4 per cent next year, if the desire is there. 

NSW& VIC job vacancies strap on after-burners

Vacancies boom

Job vacancies increased by another 3.3 per cent or 7,800 to 243,500 in April.

This means vacancies are up by a stunning 246 per cent from the trough of a year earlier, and now sit at the highest levels in the 12½ years since October 2008. 

It's been a genuinely stunning nationwide recovery with advertisements up by 200-300 per cent from the  lows across most of Australia. 

It's worth noting, though, that 5 of the 8 states and territories saw job ads decline in April, with the JobKeeper stimulus now being wound back.

New South Wales and Victoria, on the other hand, are still absolutely booming.

This will likely lead to skills shortages and rising wages, at least until the international borders can reopen. 

Shortages are already emerging in some of the lower paid sectors, such as hospitality. 

Unemployment to fall again?

Tomorrow's labour force report will thus balance directly competing forces in the ending of the JobKeeper package to record high job ads, and as such forecast ranges are extremely wide. 

The unemployment rate could swing anywhere from 5.4 per cent to 5.8 per cent, while total employment could either be down by 40,000 or up by 60,000.

Nobody knows, but the possible skills shortages and difficulties in hiring suggest that a level of caution should be applied to the most optimistic forecasts. 

NSW stamp duty booming again

Tax grab

There's been some news this week with regards to the Victorian Labor government nudging up property taxes to raise a windfall to shore up the budget coffers.

We've seen such tax grabs before, and this time around there are amendments to land tax, new taxes on development, and property investment. 

There will be substantial increases to land tax for properties valued at above $1.8 million, and a Windfall Tax for capital gains related to rezoning (there was a similar 'betterment' levy in Sydney in the early 1970s, but it was abolished relatively quickly). 

It's been a challenging year for Victoria, with the state no longer attracting interstate migrants as it was previously.

In fact, thousands were leaked to lifestyle locations in south-east Queensland due to Melbourne's virus outbreaks and lockdowns, as well as the increased ability to work from home. 

NSW duties boom

There should be little need for New South Wales to attempt anything similar from a tax perspective, with property transaction volumes rebounding sharply towards 250,000 over the year to March 2021.

Total land and transfer duties have surged back to $8.2 billion for the 12 month period, with much more to come over the remainder of the year. 

For context, Victoria's land tax measures are expected to bring in $2.7 billion in additional property taxes over four years. 

Resi Risks & Opportunities Report May 2021

Risks & Opportunities Report

Download the May 2021 Risks & Opportunities Report, all for free, here (or click on the image below):

The 4Fs: Don't do dumb stuff

Podcast mini-series

In the latest episode of our podcast mini-series, we discuss 4 more key characteristics of our 4 Fs model (fun, fitness, finance, and filosophy).

Tune in here (or click on the image below):

You can listen to the whole podcast series on Apple here.

You can also tune in to the full podcast series at Soundcloud, Stitcher, or Spotify.

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